Tight EM credit spreads mask lingering fiscal risks
Measures of EM fiscal risk premia are very low, which partly reflects genuine policy improvements in some high-risk economies. But a few countries such as Mozambique and Tunisia still face the risk of default. And in a handful of larger EMs (e.g. Brazil, Colombia, Hungary and Poland), large budget deficits leave them vulnerable to a bond market backlash and higher yields if governments don’t deliver austerity.
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